Why Hardware Startups Are Hard and How You Can Make It Easier

Daniel Rojas Ugalde
Jan 13 · 3 min read
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All startups are hard. You are building something out of nothing and it’s a complete emotional rollercoaster. Hours can be long and you never know if it’s going to work. I’ve lived a couple of ones and it’s funny but not easy. One of those was an IoT startup focused on hardware. These hardware startups come with a completely different breed of problems than regular software startups.

The main difference is that the good part of the digital economy does not apply to you. McAfee and Brynjolfsson discuss in their book three important characteristics of digital economies: Free, Instant, and Perfect. Imagine you are watching a video on Youtube:

  • It’s free for you. Because of how the platform is built, there is a marginal cost of serving another video. You can watch as many as you want (you also have the ads). In other words, Google processing or Internet bill does not increase a lot because you watched one additional video of dancing cats.
  • Instant: You don’t need for them to mail you a DVD with the video you want to see. You just click play and you enjoy the video.
  • Perfect: Videos can be copied and reproduced perfectly. Each copy is exactly the same.

Now, these 3 great characteristics of digital economies, do not apply perfectly to hardware:

  • Hardware is not free, you have a cost to build an additional unit for a new client. This cost’s higher at the beginning when a startup is more fragile. Once you are able to do mass productions things will get better but you need to survive until then.
  • Hardware is not instant. You need to ship it or worst-case scenario you need to drive/fly to your client and install it. These visits can sum up quickly and become a ton of money.
  • Hardware is not perfect. You can achieve a great product quality but even in the best manufacturing plants, there is always a chance that you build a unit in the wrong way. These can create a lot of headaches.

Not everything is lost for hardware startups. In the same book from McAfee and Brynjolfsson, they talk about two very important ideas that you can apply for your startup:

  • Network Effects: Think about platforms that get more valuable each time a new member gets added. The best example is a social network, every time a new member is added the platform becomes more valuable (you have more people to talk to). An idea related to hardware startups could be a network of sensors. Imagine being a part of a worldwide network of sensors and being able to access all that data. It will definitely be more valuable than a network of 3 sensors in your neighborhood.
  • Complements: Some products work better when they are paired with another. In the book, they mention buns and meat. You can buy only buns, but they are more valuable when you buy also meat. You could use your hardware product with a piece of software. That could be a kind of trojan horse strategy. And in the software, the digital economy characteristics will apply.

I hope these couple of ideas help you with your current or future startup. If enjoyed the article I am writing a book on this topic. You can find it here:

https://gumroad.com/l/HGuGX

The Startup

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